The best way to use your home equity
When you're looking to fund a major expense, tapping into your home equity can be a cost-effective solution. Products like home equity loans and home equity lines of credit (HELOCs) allow you to access the value you've already built in your house to borrow funds at rates that are often considerably lower than you'll get from a credit card or personal loan.
You can use this money for anything you like, from debt consolidation to generating retirement income. There are no restrictions, and which purpose is best for you depends on your unique financial situation and goals. That said, when it comes to return on investment, one use in particular offers benefits the others do not.
Explore your home equity options here to learn more.
The best way to use your home equity
Of all the things you can use your home equity for, paying for home repairs, renovations and upgrades could pay off the most. Here's why:
You may get a tax break
One of the biggest benefits of using your home equity for home improvements is that it may reduce your overall tax burden. If you use the proceeds of your loan or line of credit to make IRS-approved improvements, the interest you pay will be tax-deductible.
Specifically, the IRS says that: "Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan. The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
To make sure the improvements you're considering qualify for this deduction, first consider speaking with a tax professional.
It can increase your home's value
The potential tax benefit isn't the only way it pays to use your home equity for home improvements. Depending on the work you do, it could also boost your home's value.
Everything from minor improvements (like a fresh coat of paint) to major improvements (like a kitchen or bathroom remodel) can make your home more attractive to potential buyers, increasing your resale value if you ultimately decide to sell. Should you plan on staying in your home, it could give you more equity to draw from in the future, which can help you out with future expenses.
If you're looking for the biggest bang for your buck, these projects offer the highest returns.
Find out how much home equity you can borrow — compare your options online now.
You won't have to move
If you love your home, but it's no longer meeting your needs, using your home equity to make some improvements can be an excellent alternative to moving — especially when high home prices or low inventory make it hard for buyers to find the right place.
Rather than going through the hassle and expense of selling your home and buying a new one, you can adapt your existing space to better meet your needs. This can save you considerable money and time and allow you to stay in a neighborhood and community you enjoy.
These tweaks can be particularly useful for seniors who'd prefer to age in place. They can use their home equity for projects like adding handrails or a walk-in tub, making their home more accessible and enabling them to stay in it longer.
You could save money in the long run
Investing in certain upgrades can also save you money in the long run. For example, switching to energy-efficient windows or installing new insulation can significantly reduce your home's energy bills. Even simple upgrades like sealing drafts can make a big difference.
While you'll need to pay for these things upfront, they can pay you back over time and, eventually, even help reduce your budget.
Check out today's home equity rates here to learn more.
The bottom line
Using home equity to pay for home improvements is a smart option for homeowners. It can increase the value of your home, help you save money in the long run, stay in the neighborhood you love and potentially enjoy tax benefits, too.
To get the most from your home equity, make sure you meet the necessary requirements, shop around for the best rates and time your application for when your equity is high. Whether you're considering a small renovation or a major overhaul, tapping into your home equity can help you achieve your goals and make your home a more enjoyable and valuable place to be for years to come.
